Hedge fund magnate Ray Dalio warned investors on Thursday that the next bear market could be very painful since most are not prepared for it.
S&P 500 has more than tripled. The market’s jump in that time has been propelled in part by historically low interest rates from the Federal Reserve.
These low rates have created an incentive “to borrow money and buy stocks,” Dalio said. “That’s what caused the market to go up.”
However, the Fed is currently in the process of raising rates. The central bank has increased rates three times this year and is forecast to hike once more in December.
Dalio’s comments come amid heightened volatility in the U.S. stock market. The S&P 500 fell into a correction in October before rebounding. The recent sharp moves come as investors worry about higher interest rates and global trade as well as a possible slowdown in the global economy.
“You have to create differentiation without much beta being built into the portfolio,” he added. “That will be the opportunity to distinguish those who were able to extract alpha and those who weren’t.”
Dalio founded Bridgewater Associates, the largest hedge fund in the world, in 1975. Through the end of 2017, the fund managed about $160 billion in assets.